Bargain Homes in the Best School Districts

Business Week worked with real estate portal Cyberhomes to find the most affordable zip codes with the best public schools.

By Prashant Gopal, Business Week

The location of a home, as we all know, determines its value. Buyers consider proximity to jobs, public transportation, shops, parks, and entertainment when looking for a place to live. But they’ll pay a premium—even if they have to work multiple jobs, pinch pennies, and endure long commutes—to find a home in a top-rated school district.

Sep 25th, 2009

The best public schools are typically found in the priciest neighborhoods, as economist Sandra E. Black found more than a decade ago when she studied elementary school test scores in the affluent Boston suburbs. Black found that parents were willing to pay 2.1% more to live in a school zone where test scores were 5% higher. Studies by other researchers in other parts of the U.S. and the world have since confirmed the link between real estate values and school quality.

So, what’s a budget-conscious buyer to do? Business Week worked with real estate portal Cyberhomes to find the 25 most affordable Zip codes with the best public schools. The top-ranked places have relatively low home values compared with the closest metro area and at least three schools with excellent standardized test scores. We identified working-class towns such as Vandergrift, Pa., outside Pittsburgh, where the median home value in June was $65,600—half the metro area’s median price—and Irvine, Calif., an Orange County college town with excellent public schools and a median home price just over $500,000 (astronomical by western Pennsylvania standards but downright reasonable in California).

Long Commutes: Time Is Money

“We wanted to find places where—relative to the market—you could still find values,” says Sarah Max, a senior writer at Irvine-based Cyberhomes.

Among the top-ranked Zip codes were Pearl River, N.Y., and Nanuet, N.Y., both in Rockland County, a leafy suburban area only about 10 miles from Manhattan’s border at its closest points. Residents move to Rockland for the parks, the tree-lined streets—and because they get the best schools for their money.

Rockland is considerably less expensive than nearby Westchester County, N.Y., and Bergen County, N.J. That’s largely because residents endure long and unpredictable commutes, says Pete Sambets, an associate broker at Joyce Realty in Pear River. “You have to plan for a two-hour trip—it all depends on the traffic,” Sambets says. “That’s why the prices are where they are.”

California buyers can sometimes choose to forgo an ocean view to opt for inland property with a better school system. The college town of Irvine, which ranked No. 12 on our list, doesn’t have a beach, but it does have a renowned school system.

Involved Parents Count As Much As Schools

“There are definitely trade-offs people will make,” says Black, now a University of California at Los Angeles economics professor. “The hard thing is that places with better schools tend to be in wealthier neighborhoods. A place with an ocean view might also have better schools. It’s hard to say how much you’re paying for better schools and how much you’re paying for the views.”

It’s not just the beauty of a location that drives home prices. Marcus A. Winters, a senior fellow at the Manhattan Institute and an economist who focuses on education policy, says parents in wealthier neighborhoods tend to play a key role in pushing up test scores. They are often well-educated and want the same for their kids. They get involved in the schools and hold teachers and principals accountable. Students likely also benefit from being with peers with similar educational goals. And school choice can create competition and improve performance, he adds.

What remains unclear is whether people pay more to be in pricey neighborhoods because of the excellent schools or to live among the types of people who are attracted to good schools. Home buyers without children might also consider moving to neighborhoods with good schools for many reasons. It will cost them, but it could might make financial sense because homes near good schools are always in demand. On the other hand, investors might consider buying in a lower-quality school district and then work to improve the schools and, as a result, improve property values, Winters says.

The Most Bang For Your Buck

Of course, there’s more to school quality than test scores. Not all parents and students want the same things from their schools. Families look for extra-curricular activities or top sports programs. But perceptions matter, especially in academics.

A decade ago, Florida began giving letter grades to schools based on standardized test scores, with “A” being the best and “F” the worst. David Figlio, now a professor of education, social policy, and economics at Northwestern University, studied Gainesville (Fla.) area home prices in 199 subdivisions and 20 elementary school zones before and after the state School Accountability System went into effect in 1999. He discovered that that an A school was worth about $10,000 to a home’s value, on average—about 8%—more than a B school.

If you’re looking for a bargain, Figlio suggests finding a B school that just missed the top grade. That way a buyer could pay less for a home and still send their children to high-performing schools. And if the school improves just a touch the next year, a family could see some welcome home appreciation.

“If a school barely missed getting an A, you might be getting the biggest bang for your buck,” Figlio says.

Vandergrift, located 35 miles north east of Pittsburgh on the banks of the Kiskiminetas River, is an affordable town with good schools and its own drive-in theater called the Riverside. About 27% of households in the Zip Code have children, and the median household income is $45,225.

Lake Worth, a coastal city just south of West Palm Beach, is known for its political activism, beautiful beach, vibrant downtown, and diversity. Lake Worth is a hub for antiwar and migrant-worker rights activism. The tiny town is home to many immigrants, including migrant farm workers. About 16% of households in the Zip Code have children, and the median household income is $98,992.

Middletown, located an hour west of Baltimore midway between the peaks of Braddock and South Mountains, is a mix of modern subdivisions and picturesque dairy farms. It is home to the renowned Hollow Creek Golf Club. About 35% of households in the Zip Code have children, and the median household income is $105,345.

Longmont is about 15 miles north of downtown Boulder, the home of the University of Colorado. It has 300 days of sunshine and gorgeous views of the Rocky Mountains. About 30% of households in the Zip Code have children, and the median household income is $108,075.

Rancho Santa Margarita, a master-planned community located at the base of the Santa Ana mountains, is one of the safest towns in Orange County, according to the 2008 FBI Uniform Crime Report. About 45.28% of households in the Zip Code have children, and the median household income is $117,701.

Louisville is a former coal-mining town southeast of Boulder, includes about 1,700 acres of government-controlled open space. About 40.55% of households in the Zip Code have children, and the median household income is $119,453.

Lindenhurst, a village on the southern shore of Long Island, is part of the town of Babylon, which also includes the villages of Amityville and Babylon. About 37.52% of households in the Zip Code have children, and the median household income is $92,426.

Cincinnati, the state’s third-largest city located, in the hills of the Ohio River Valley, is home to large corporations, a zoo, botanical garden, and downtown with a public gathering place known as Fountain Square. About 32% of households in the Zip Code have children, and the median household income is $84,825.

The Rockland County suburb, conveniently located 30 miles north of Manhattan, is less expensive than many surrounding towns. Lake Nanuet Park has a water slide, bathhouse, and lighted ball field. About 33.44% of households in the Zip Code have children, and the median household income is $115,647.

Clayton, located 20 minutes from the state capital in Raleigh, is close to the thriving Research Triangle area. It is home to three golf courses, a 600-seat auditorium, and the Harvest Festival, which draws artists and craft makers from throughout the state. About 26% of households in the Zip Code have children, and the median household income is $84,005.